China’s Local Government Bond Rush Worsens Liquidity Strain
China’s local governments are rushing to issue bonds to refinance hidden debt, further tightening liquidity in the financial system. Most Read from BloombergTrump Targets $128 Billion The refinancing push comes after China approved a plan in late 2024 to allow regional authorities to swap six trillion yuan worth of hidden debt — mostly held by local government financing vehicles — over a three-year period. This would help regional authorities reduce interest payments.The unusually big offering has exacerbated a cash squeeze this year, as banks rush to absorb the securities.
- The increasing reliance on bond issuance from local governments highlights the growing fragility of China's financial system, where complex webs of debt and off-balance-sheet financing pose significant risks to the entire ecosystem.
- How will policymakers address the issue of liquidity strain in the banking sector, which could have far-reaching implications for the stability of China's financial markets?